MINUTES OF THE BOARD OF COMMISSIONERS' MEETING
LANSING BOARD OF WATER AND LIGHT
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Tuesday, April 8, 2003
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The Board of Commissioners met in rescheduled session at 5:30 p.m. in the Boardroom of the Administrative Offices, 1232 Haco Drive, Lansing, Michigan. Chairman Ron Callen called the meeting to order.
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Present: |
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Absent: |
Tim Haggart, Connie Marin, Diane R. Royal –3 |
The Secretary declared a quorum present.
All said the Pledge of Allegiance.
APPROVAL OF MINUTES
Motion made by Commissioner Wonch, seconded by Commissioner Duncan, to approve the minutes of the Rescheduled Board Meeting of January 30, 2003.
Carried unanimously.
Motion made by Commissioner Smith, seconded by Commissioner Duncan, to approve the minutes of the Special Board Meeting of March 10, 2003.
Carried unanimously.
THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON ANY AGENDA SUBJECT OR ON ANY OTHER SUBJECT NOW, OR AT THE END OF THE MEETING.
Joseph Davis, President of IBEW, Local 352, spoke on behalf Curt Gates, Business Agent for IBEW Local 352. Mr. Davis recognized the efforts and hard work of Water Department employees during this past frigid winter season. BWL employee Johnny Moore was present to receive a plaque honoring the Water Department. Mr. Davis noted that last year the Water Department serviced 140 water main breaks compared to 181 water main breaks year to date, with 125 recorded in the last four months. There were 200 frozen services, which added up to approximately 30,000 hours, all worked without accident or injury. Mr. Davis also read a letter written by Curt Gates, which acknowledged the following: (1) the Commissioners’ continued support; (2) Interim General Manager Elashkar’s positive efforts to bring focus and direction to BWL; (3) efforts to resolve Customer Choice issues; and (4) a request for the Chief Financial Officer to report on BWL pension funds invested in terrorist-sponsoring nations. The complete text of Mr. Gates’ letter is appended to these minutes.
Eugene Buckley, an economics instructor at Lansing Community College, expressed concern over escalating energy costs and deregulation. He noted that in February, natural gas spiked at $16 per million BTU’s. He predicts that within five years, the average household could see a $1,000 per month bill for gas and electric. Mr. Buckley would like to present an energy proposal, that he feels would generate revenue to assure that we all have low-cost electricity in the future. Chairman Callen stated that the BWL could arrange an opportunity to meet with Mr. Buckley.
Paul Pratt, Ingham County Deputy Drain Commissioner, appeared on behalf of Patrick Lindemann, Ingham County Drain Commissioner, with policy suggestions to guide the new General Manager. One of the problems the State of Michigan has is the continued intensity of growth in rural areas at the expense of urban areas that already have infrastructure. Messrs. Pratt and Lindemann suggest that the focus of the BWL and its policymakers should be to encourage reurbanization and not the opposite. He noted that there are ways to think through how the BWL evaluates and performs projects. Mr. Pratt stated that not every proposal for expansion of service outside the area is in the long-term interest of BWL customers. He added that as a resident of Lansing and a satisfied utility consumer, he wants to see the BWL continue with a price advantage, good service, and not use utility dollars to subsidize turning cornfields into subdivisions.
FINANCE COMMITTEE REPORT
Committee Members Duncan, Smith and Royal were present. Commissioners Marin also attended. Excused absence: Commissioner Wonch.
The Finance Committee met on February 11, 2003 at 5:30 p.m. and discussed the following items:
1. Vulnerability Assessment
2. Inter-Utility Transfers
3. Electric Utility Energy Cost Adjustment (ECA)
4. Six-Month Budget Review
5. Fiscal Year 2004 Budget Parameters
6. External Auditor’s Management Letter
7. Water Wholesale Contracts
By motion of Commissioner Royal, seconded by Commissioner Duncan, agenda topics #1 and 2 (above) slated for discussion just prior to the Finance Committee were moved from the Committee of the Whole agenda, due to lack of a quorum, and included with the Finance Committee agenda. Carried unanimously.
1. Vulnerability Assessment
Moved by Commissioner Royal, seconded by Commissioner Duncan, for the Finance Committee to meet in closed session to receive a confidential briefing by Special Projects Director Clyde Dugan on the vulnerability assessment of critical water utility facilities as permitted by the Open Meetings Act (5:37 p.m.). (Two members of a committee represent a quorum.)
Adopted by roll call vote:
Yeas: Commissioners Duncan, Marin, Royal, and Smith
Nays: None
Absent: Committee Member Wonch
The Finance Committee reconvened in open session at 6:05 p.m.
2. Inter-Utility Transfers
Director of Metrics and Audit Kellie Willson reported on past cross-utility subsidization and the impact of repayment on the water and steam utilities. A historical overview of inter-utility transfers was presented, which indicated that the water and steam utilities have not been generating enough revenue to cover all operating and capital expenditures. Estimated amounts due from the water and steam utilities prior to fiscal year 1987 and through December 31, 2002 were reviewed. As an alternative to requiring full repayment to the electric utility in fiscal year 2004, two options were discussed: (1) No repayment to the electric utility or (2) repay only the General Motors incentives for the Water and Steam utilities.
Lengthy discussion followed on the course of action to ensure recovery of investment, control of costs and development and implementation of competitive rates. In addition to reducing costs while increasing revenue, staff is in the process of developing guidelines to identify rate adequacy and to determine if cross subsidization is occurring between utilities. An economic evaluation process to include six years of follow-up for each utility would evaluate the success of corrective actions taken.
The Committee recommends the following resolution for Board consideration:
Inter-Utility Transfers
(Resolution #2003-4-1)
RESOLVED, That effective Fiscal Year (FY) 2004, the budgeting process be changed to take into consideration the concept and practice of financially independent Water, Electric, Steam and Chilled Water utilities; and
RESOLVED FURTHER, That the budget for each utility be balanced at the beginning of the fiscal year via an interest-bearing note issued from the surplus of one of the other utilities; and
RESOLVED FURTHER, That all inter-utility transfers prior to FY 2004 be waived except for: (a) the existing formal inter-utility loans and interest-bearing notes; and (b) the General Motors’ Lansing Grand River Plant incentive package valued at $343,000 for the water utility and at $4,435,000 for the steam utility, to be repaid with 5.0% interest to the electric utility over a six-year period.
3. Electric Utility Energy Cost Adjustment
Chief Financial Officer Dana Tousley reported that the Energy Cost Adjustment (ECA) was frozen in February 1999 at one mill per kilowatt-hour ($.001000 per kWh) for a period of four years in order to raise $12.7 million to fund the conversion of Eckert and Erickson Stations to less expensive Western coal. Since that time, the ECA generated $16.2 million that normally would have gone back to customers. The average cost of fuel was 7.5% lower than expected and the BWL had 6.8% higher retail sales than projected in 1999. The BWL has committed $6.7 million for converting Eckert Station and Erickson Station to burn Western coal and $11.2 million to replace the Erickson Station precipitator. The precipitator project included modifications to allow the burning of Western fuel and the use of low NOx (nitrogen oxide) burners.
As an alternative to reinstating the original ECA method of calculation, two potential options were reviewed, but were dismissed. Staff recommends and the Committee concurs that the ECA freeze, which expired on February 3, 2003, not be extended. Consequently, the ECA in effect prior to February 1999 is restored to the original methodology. If the ECA remains constant for the next 12 months, retail customers will experience a slight rate decrease of 0.486 mills or $0.000486 per kWh. This is an informational item, thus no action is required. A general announcement to advise customers that the original ECA is re-established will be sent to the general public via the Connections newsletter.
4. Six-Month Budget Review.
Chief Financial Officer Dana Tousley reviewed the various components of operating expenses, using the FY 2003 budget as the baseline. By fiscal year end, management anticipates that operating and maintenance expenses (including fuel and purchased power) will match the original projection of $171,588,000.
5. Fiscal Year 2004 Budget Parameters
General Manager John Elashkar reviewed the parameters and assumptions to be used in preparing the FY 2004 budget. Cost cutting efforts include the following:
(a) Capital expenditures,
excluding bonded projects, will be reduced to less than $30 million. The
six-year average is anticipated to be less than $30 million. This reduction is
to be accomplished by using cash available from each utility to determine each
utility’s capital expenditures.
(b) Operating expenses will be 7%
less than the FY 2003 budget.
(c) No bond issues are planned.
(d) Revenue forecast will be
based on existing and known changes in
sales volumes.
(e) Preliminary load and sales forecast includes unit
sales increases
and decreases as follows:
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FY 2004 Forecast |
Budget’04 to |
FY’04 Budget |
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Water @ 11,244,467 CCF |
-1.6% |
+1.8% |
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Electric @ 3,182,000 MWH |
+2.2% |
+4.2% |
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Steam @ 1,926,700 MLB |
-19.4% |
-18.6% |
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Chilled Water @ 11,931,000 Ton/Hrs |
-42.6% |
+30.9% |
The Committee will review these planning assumptions in March with more detail.
6. Wholesale Water Contracts
General Manager Elashkar reported that staff was not ready to discuss wholesale water contracts in detail at this time and asked that it be deferred to a later meeting. He indicated that staff is exploring options to bring to the Finance Committee in March prior to meeting with affected townships.
7. External Auditors’ Management Letter.
Chief Financial Officer Tousley presented an overview of management responses to comments raised by Plante Moran following their FY 2002 audit. The following issues were discussed:
(a) Efficient access to financial information
(b) Information system security
(c) The need for succession planning and cross-training
(d) Improving inventory software and technology
Management has implemented enhancements and is continuing to address most issues in a timely manner. A complete copy of the external auditor comments and management responses is filed with the Corporate Secretary.
The Committee requested that staff prepare a report on succession planning for critical positions to be submitted to the Board in the future.
There being no further business, the meeting adjourned at 7:15 p.m.
Respectfully submitted,
Nancy Duncan, Chair
Finance Committee
Moved by Commissioner Duncan, seconded by Commissioner Smith, to approve the Finance Committee Report.
Discussion: Commissioner Duncan reported that discussion on inter-utility transfers has led to a resolution for consideration. The resolution indicates that the BWL would change the budgeting process effective FY 2004, to take into consideration the concept and practice of financial independence for the water, electric, steam and chilled water utilities. The budget for each utility would be balanced at the beginning of the fiscal year via interest-bearing notes from the surplus of any other utility. All inter-utility transfers prior to FY2004 would be waived except for two specific existing inter-utility loans and interest-bearing notes; and the General Motors Lansing Grand River Plant incentives package. The Finance Committee believes this is the best next step for the Board to take relative to the long-standing issue of inter-utility transfers and subsidization.
Commissioner Wonch asked for the dollar amount if all utility transfers are waived. Director of Metrics and Audits Kellie Willson responded that the total is approximately $51 million. In the future, there would not be that debt because each utility would have a balanced budget and they will not be subsidizing each other.
At the request of Chairman Callen, Commissioner Duncan gave an overview on the issue of Inter-Utility Transfers for the benefit of new Commissioner Ifield Joseph. She reported that the BWL operates the electric, water and steam utilities. She reported that a number of years ago, the Board adopted, as a principal, that each utility should be self-supporting so that the ratepayers would pay the costs associated with that utility. The BWL has not been able to attain that goal; and as a consequence, the electric utility and ratepayers have subsidized the water and steam utilities. The BWL has kept records of the degree of subsidization. The struggle has been what has happened in the past, and what should be done in the future. If the BWL were to require the water utility to repay everything that it owes to the electric utility, water rates would have to be raised significantly. Customers currently using the water would be paying, and perhaps they were not water users at the time the debt was incurred. For technical and substantive policy reasons, the Finance Committee recommends that the utilities will operate and be free standing. In the event one of the utilities needs subsidization, it will be recognized in the budget via interest-bearing notes at the front end, but in essence each utility will be treated independently. Commissioner Duncan asked Director of Metrics and Audits Kellie Willson to comment on the exemption of the General Motors incentives. Ms. Willson explained that these are formal loans on specific assets for General Motors. This Resolution will take effect on July 1, 2003, which is the beginning of Fiscal Year 2004.
Commissioner Smith commended staff’s efforts in bringing forth corrective measures to ensure recovery of investment.
Action: The Finance Committee Report was unanimously adopted.
Moved by Commissioner Duncan, seconded by Commissioner Wonch, on the approval of the resolution for Inter-Utility Transfers (Resolution # 2003-04-1).
Action: Carried unanimously.
No recommendations were submitted.
UNFINISHED BUSINESS
None.
NEW BUSINESS
None.
RESOLUTIONS
None
GENERAL MANAGER'S REMARKS
General Manager Elashkar handed out three documents to the Commissioners.
General Manager Elashkar congratulated Chairman Callen for his selection to serve as an at-large member to the American Public Power Association Policy Maker’s Council. The Council is comprised of local elected and appointed officials that represent public power communities across the USA.
A copy of a memo on the Customer Choice Pilot Projects, dated March 11, 2003, prepared by Assistant General Manager Bill Cook, was included in the Board packet. There were no questions or comments on this report.
COMMISSIONERS’ REMARKS
Commissioner Smith complimented BWL employees for the great job they have done on the Water Customer Choice Project. She stated that all parties came together on these projects and noted that Water Customer Choice is going to be very good for Lansing. Commissioner Smith thanked the BWL for bottled water contributed to the recent open house at the Pentecostal Church Larry Trice Outreach Center.
Commissioner Wonch complimented the water service repair team. She reported that a customer recently made positive comments to her on the speed, efficiency and courtesy extended by employees during a recent water outage. Commissioner Wonch expressed her appreciation to the BWL, on behalf of the Pattengill Middle School Band, for contributing bottled water to the MSBOA Festival. On behalf of the Lansing School District Bond Committee, Commissioner Wonch thanked General Manager John Elashkar and BWL energy consultants for their assistance in working with the Lansing School District to minimize the next bond issue to be presented to City of Lansing voters.
Commissioner Ifield Joseph thanked General Manager Elashkar and several staff members for arranging a tour of BWL facilities. He complimented BWL employees that he met for their congeniality.
EXCUSED ABSENCE
On motion by Commissioner Duncan and seconded by Commissioner Wonch, that the absences of Commissioners Haggart, Marin and Royal be excused.
Carried unanimously.
PUBLIC COMMENTS
THE CHAIR ANNOUNCED THAT MEMBERS OF THE PUBLIC ARE WELCOME TO SPEAK TO THE BOARD ON ANY BOARD OF WATER AND LIGHT SUBJECT.
Curt Gates extended his congratulations to Commissioner Ifield Joseph on his appointment to the Board. He reported that BWL employees are looking forward and appreciate the opportunity to participate in the executive search process for the new General Manager. Mr. Gates noted that he is already starting to get input from employees.
On motion by Commissioner Wonch, seconded by Commissioner Duncan, the meeting adjourned at 6:15 p.m.
/s/ Mary E. Sova, Secretary
Filed with Lansing City Clerk
April 14, 2003
ATTACHMENT A – from Public Comments
Letter submitted to the Board by Curt Gates, Business Manager of IBEW Local 352.